Getting Loans for Day Care?

NEW YORK (MainStreet)City of New York mayoral candidate and Council Speaker Christine Quinn announced earlier today an experimental education program aimed at early childhood: student loans for daycare. Dubbed the Middle Class Child Care Loan Initiative, this program will offer loans up to $11,000 per year at 6% interest to parents with children aged two to four. The loans will not come from the City of New York directly, but rather are being offered through the Neighborhood Trust Financial Partners, a Manhattan credit union that specializes in financial services for underserved populations.

The purpose of this program, according to Quinn, is to help families in the middle class afford the increasingly high costs of childcare in New York City.

"Early childhood education is one of the most important investments a parent can make," Quinn said in a press release. "But too often, quality child care is out of reach for middle class families."

Quinn's remarks refer to the spiraling costs of daycare in New York City, most recently estimated at over $13,000 per year, well out of the range of many middle class households. New York City currently subsidizes childcare for low-income families; however, this program is available only to families that fall between 225% and 275% of the federal poverty level. The middle class gets no such assistance.

In order to qualify for one of the new loans, a family will have to meet a series of standards. Applicants will need an income between $80,000 and $200,000 per year and a credit score no lower than 620. They will also be required to attend a financial counseling session with a counselor from Neighborhood Trust to determine how or if they could manage the new debt. If approved, the loan would be issued directly to the daycare provider by Neighborhood Trust Federal Credit Union.

This program will start with 40 families in its first year and is backed by a $300,000 grant from the City Council to cover operating costs and potential defaults. It will also help subsidize interest rates in order to keep them at 6%. Loans will not enter repayment until a child reaches kindergarten age.

"Day care lending," writes Matthew Yglesias for Slate, "has basically none of the features that make college tuition loans seem attractive. Being able to get a loan for your three year-old to get some child care doesn't in any clear way increase your income three, five or ten years down the road... [and] down the road, you're going to end up with a new set of difficult situations as people struggle to repay the loans."

The core of the argument against the loans is that they impose a considerable amount of debt on a family while doing little to improve income. This may not entirely be the case, however, in families where one parent becomes free to work, and therefore earn, for several extra years. Furthermore, according to the National Institute for Early Education Research, early childhood education such as daycare and preschool in fact does produce "long-term improvements in school success, including higher achievement test scores, lower rates of grade repetition and special education, and higher educational attainment."